ULIP- Unit Linked Insurance Plan

Best ULIP Plans in India 2024

Below are some of the best ULIP Plans in India:

Disclaimer:
- Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.”
- The returns are the returns of the best-performing fund in the plan. * RSI: Returns Since Inception
- Data Source: Value Research

Let’s understand ULIP with an example:

Akash, a 30-year-old man, invested in a ULIP Plan for 20 years. He pays a yearly premium of Rs. 50,000 for 10 years. 

Policy Details:

Initial Sum Assured = Rs. 5,00,000 (yearly premium x 10)
Annual Administration and other charges = Rs. 2500
Total Annual Investment = Rs. 47,500
Initial NAV = Rs. 10
Units purchased = (47500/10) = 4750

Final ULIP Plan Returns:

What is a ULIP Calculator?

A ULIP calculator is an online tool that helps investors calculate their premium payments and expected returns based on their investment horizon, risk, and financial goals. The Unit-Linked Insurance Plan calculator takes into account various factors, such as.

• Amount you wish to invest (monthly/yearly/one-time)

• Policy tenure (for which you wish to stay invested)

• Periodic investment period (for which you wish to pay premiums)

• Expected rate of return

By entering these specifics, the investors can analyze projected investment growth overall and choose a preferred plan.

Different Types of ULIP Plans

ULIPs are classified based on their purpose and death benefit. Let us learn about them in detail.

1. Classification by Purpose

   Various ULIP types include Retirement ULIPs, Wealth Collection ULIPs, Children's Education ULIPs, and Health Benefits ULIPs, helping to meet diverse financial needs and goals.

   • ULIP Plan for Retirement: With Whole Life ULIPs, you have an effective retirement planning tool. In the ULIP Pension Plan investment component of these plans lets you accumulate a significant corpus over the long term. Imagine having a substantial amount ready for your retirement needs, paid out to you in the form of annuities once you retire.

   • ULIP Plan for Wealth Collection: Are you in your late twenties or early thirties? ULIPs could be your ticket to accumulating wealth over time. By investing in this plan, you gain the flexibility to fund your future financial goals. Think of it as a strategic move to secure your financial future.

   • ULIP Plan for Children's Education: As a parent, don't you want the best for your child's education? Child ULIP Plans come with a waiver of premium features. Imagine a situation where, due to disability, critical illness, or even death, you're unable to pay the premium. This feature ensures that your policy continues without any hitches, making sure the financial goals you've set for your child's future remain uncompromised.

   • ULIP Plan for Health Benefits: Did you know that ULIPs offer more than just common benefits? They efficiently provide financial assistance to tackle medical emergencies. So, when health challenges arise, you have a financial cushion to fall back on.

   Read more

2. Classification by Death Benefits

   ULIP plans come in two types: Type 1 prioritizes life coverage with a higher payout on demise, while Type 2 emphasizes investment, offering the fund value on death. Both types allow customization for diverse financial goals.

   Parameter	Type 1 ULIP Plans	Type 2 ULIP Plans
   Lock-in period	5 years	5 years
   Investment options	Equity, debt, or a mix of both	Equity, debt, or a mix of both
   Returns	Market-linked returns	Market-linked returns
   Death Benefit	Plans pay either the sum assured or the higher fund value to the nominee upon the policyholder's death. For example: If the sum assured is ₹40 Lakh and the fund value is ₹50 Lakh, the beneficiary shall receive the fund value.	Plans pay the sum assured and the fund value together, resulting in a higher premium and a larger payout to the nominee. For example: If the sum assured is ₹40 Lakh and the fund value is ₹50 Lakh, the beneficiary shall receive ₹90 lakh (₹40 lakh sum assured + ₹50 lakh fund value).
   Objective	Guaranteed death benefit payout	Higher returns
   Suitable for	Risk-tolerant investors	Risk-tolerant investors
   Sum at Risk	As the fund value steadily increases over time, the amount of risk faced by the insurance company decreases correspondingly.	As the fund value steadily increases over time, the amount of risk faced by the insurance company decreases correspondingly.

What are the Features and Benefits of ULIPs?

ULIPs combine insurance and investment, offering flexibility to switch funds, tax benefits^{^} under Section 80C, and tax-free^{^} maturity proceeds. With features like a 5-year lock-in, transparent charges, and a top-up facility, ULIP plan promotes long-term financial growth and continuous life cover for loved ones, and that's why it can be considered one of the best investment plans.

Here are the features and benefits of ULIPs explained:

• Dual Benefit: With ULIP plan, you get the dual advantage of insurance and investment. While a portion of your premium ensures you're covered with life insurance, the other part is invested in various funds of your choice.

• Flexibility to Switch Funds: ULIPs don't lock you into one investment strategy. You can switch between different ULIP funds based on your investment objectives and risk tolerance.

How to Choose the Best ULIP Plans in India?

There are some things that an investor should keep in mind while choosing the best ULIP plans in India. Here’s a list of some pointers to consider while buying one:

• Align the ULIP plan with your long-term financial goals and investment horizon.

• Spend time deciding investment goals, ranging from education funds to post-retirement needs and look for ULIPs that fulfil those goals.

• Thoroughly compare the features and benefits of different ULIP plans.

• Evaluate policy tenure flexibility based on your investment horizon. Choose from hybrid, equity, or debt ULIP plans.:

• Be aware of various charges, including initial charges, premium allocation fees, and fund management fees.

• Review the historical performance of the ULIP plan over the last three to four years.

• Ensure the insurance company has a solvency ratio of at least 1.5, indicating financial stability.

• Monitor the long-term performance of ULIP funds to make informed investment decisions.

• Explore ULIP plans that offer strategic investment options aligned with specific financial objectives.

What are the Different Types of ULIP Funds?

ULIP plans offer diverse fund options like equity, debt and hybrid funds. This variety allows investors to tailor their portfolios based on risk tolerance and financial objectives.

• Equity Funds: Invests in stocks of companies, aiming for high returns but with higher risk due to market fluctuations. Good for long-term goals and those comfortable with risk.

• Debt Funds: Invests in fixed-income instruments like bonds, offering stable returns with lower risk. Suitable for those seeking capital preservation and predictable income.

• Hybrid Funds: A mix of equity and debt funds, balancing risk and return.  They offer moderate growth potential with stability. Ideal for those who want some equity exposure but with a risk buffer.

How To Manage ULIP Funds?

Managing ULIP funds effectively involves understanding various strategies that can help optimize your investment. Here are some key points to consider:

• Self-Switching: One option for managing ULIP funds is through self-switching. You can choose to switch your ULIP (Unit-Linked Insurance Plan) funds yourself to align with your investment goals.

• Automatic Switching: For those who prefer a hands-off approach, automatic switching can be a suitable choice. With this option, professional fund managers handle the switches based on the different parameters you set when purchasing the policy.

• Investment Top-Ups: You have the option to add more money to your ULIP to increase its value. This strategy is often chosen when the ULIP (Unit-Linked Insurance Plan) is already performing well, allowing investors to capitalize on the opportunity and maximize returns.

Tax Benefits on ULIPs 

The ULIPs (Unit-Linked Insurance Plan) taxation structure can be comprehended from the information provided below.

1. LTCG Exemption 

   Long-term capital gains (LTCG) tax is exempted on ULIPs for annual premiums up to 2.5 lacs. 

2. Income Tax Benefits Under 80C

   With a maximum exemption of Rs. 1.5 lakh under Section 80C, ULIP premiums qualify for tax savings. Moreover, the maturity benefits from ULIPs remain tax-free^{^}. To get these benefits, it's crucial to ensure the Sum Assured or Death Benefit is at least 10 times the annual premium. Falling short of this requirement reduces income tax benefits to 10% of the Sum Assured. 

3. Income Tax Benefits Under 10(10D)

   The maturity benefits from Unit Linked Insurance Plans are tax-free. For ULIPs issued before February 1, 2021, maturity benefits are tax-free, regardless of the total premiums paid in any given year during the policy term.

   Claiming the tax benefits on ULIPs is straightforward. Premiums and maturity proceeds enjoy tax exemption under Section 80C and 10(10D), making ULIPs an attractive choice for those seeking financial security with added tax advantages.

Disclaimer: Tax benefits and savings are subject to changes in tax laws. ^{^}Maturity benefits are applicable for annual premiums up to 2.5 lacs.

What are the ULIP Charges? 

ULIP charges encompass premium allocation, fund management, policy administration, mortality, and surrender charges. Understand these fees for informed investment decisions.

They are subdivided into the following categories:

• Premium allocation charge: The fee charged by the insurance company for allocating the principal to various investment funds.

• Fund management charge: The fee charged by the fund manager for managing the investment portfolio of ULIP.

• Mortality charge: The fee charged by the insurance company for providing the life cover under ULIP.

What is ULIP NAV?

ULIP NAV, or Net Asset Value is the value of a single unit of a ULIP fund. It signifies the unit's current worth, which is important for assessing investment performance and determining policyholder returns. ULIP NAV is calculated by dividing the total value of the fund's assets by the number of outstanding units.

ULIP NAV is important because it determines the value of your investment. When you invest in a ULIP (Unit-Linked Insurance Plan), you buy units at the current NAV. The value of your investment will increase or decrease depending on the performance of the fund and the changes in the NAV.

ULIP NAV is calculated and published daily by the insurance company. You can find the NAV of your ULIP fund on the insurance company's website or in the fund's fact sheet.

Things to Avoid When Investing in a ULIP Plans

• Ignoring Your Risk Tolerance: ULIPs are market-linked, meaning returns fluctuate. Choose a fund mix that aligns with your risk appetite.

• Short-Term Goals: ULIPs are best for long-term investing (ideally 5+ years). The lock-in period and market volatility can make them unsuitable for short-term financial needs.

ULIP Plans by Insurance Companies

Choosing the right ULIP plan is important as it helps you secure your financial future. Here are some of the best ULIP plans offered by insurance companies in India: